Oracle benefits from ‘4th mover’ cloud advantage

Oracle is a distant fourth in the cloud market, far behind Amazon, Microsoft and Google. But Oracle’s underdog status could be an advantage, according to a note from Wall Street analysts at Guggenheim.

Oracle Cloud Infrastructure (OCI) provides a significant price-performance benefit against its cloud competitors, combined with “deep technology” that gives it a “4th mover advantage” in the cloud, according to a March 24 note from Guggenheim analysts John DiFucci, Howard Ma, and Jacob Smith, following a meeting with OCI leadership the previous day.

Oracle can deliver cloud services at half the price of its competition for twice the performance, the analysts said. The company benefits from a “legacy as a deep technology company,” with advantages including Oracle Real Application Clusters (RAC) for running a single database across multiple servers, with shared storage, to maximize availability and scalability. Oracle also leads in multi-tenancy. These advantages result in “higher efficiency — both technological and financial,” according to the note.

“While there doesn’t seem to be a single silver bullet, there may be hundreds of them, as Oracle has built upon the successes and shortfalls of those that came before it while infusing decades of technology innovation that is the core of this company. The result is a superior solution catered to today’s needs of the customer,” the analysts said.

Oracle can provide cloud instances in smaller footprints, which differentiates the company and allows it to explore alternate approaches such as Cloud@Customer, a hardware and software platform that runs Oracle cloud instances on customer premises, according to the note.

OCI grew 65% in the most recent calendar quarter, and Guggenheim expects that to accelerate in the current quarter.*

OCI is excellent for Oracle workloads, of course, but 68% of workloads on OCI are non-Oracle, up from 45% in 2019, Guggenheim says.

Oracle EVP OCI Clay Magouyrk and his team have experience with AWS and Microsoft Azure, which they bring to bear improving Oracle’s offering, the analysts say. For example, Oracle provides greater flexibility in compute and storage capacity compared with preconfigured options offered by the competition. Also, OCI isolates the network plane from bare metal for increased flexibility, security, and performance.

RAC and Oracle’s multitenant architecture remain differentiators years after their introduction, a result of Oracle’s “product reservoir of highly efficient innovations,” the Oracle analysts said.

OCI Gen 2, introduced in 2018, enables other advances, including the ability to package more than 100 cloud services in a small footprint, enabling Oracle’s public cloud to expand to dedicated regions. OCI Gen 2 also enables Cloud@Customer. And the Gen 2 architecture may be an enabler of Oracle Alloy, a platform that allows third parties to become their cloud providers.

Other advantages for Oracle, cited by Guggenheim:

  • OCI’s security model allows it to isolate customer workloads so that even Oracle cannot access data in these instances.

  • Oracle is an AI pioneer. AI makes the Oracle Autonomous Database, introduced in 2017, autonomous. Analysts at Monness Crespi Hardt also praise Oracle’s AI strength.

  • Oracle’s customers are migrating from on-premises to OCI. The company has more than $14 billion in on-premises database support, “which we believe will get at least a 3x uplift in revenue and 2x uplift in profit,” Guggenheim said. Additional workloads could yield a 5-7x uplift in revenue and 4x profit uplift.

*Disclaimer: I worked in marketing for Oracle 2020-22, and it was a great job—until I got laid off. And I recently did some work for an Oracle competitor. I liked working at Oracle, hated getting kicked out, and therefore my pro-Oracle and anti-Oracle biases cancel each other out, leaving me non-biased.